Citigroup’s Ed Morris Sees Potential For $65 Brent By The End Of 2017

Oil executives should brace for a slow oil price recovery, according to leading industry analyst Ed Morse, who sees Brent prices reaching $65 a barrel at the end of 2017.

The Citigroup commodities researcher made the prediction during an airing of Bloomberg News Wednesday morning, during which he cited the effects of the Organization of Petroleum Exporting Countries (OPEC)’s lack of effort in reducing the global oil glut as a major factor in the elongation of the current pricing crisis.

On the 200-day average for Brent Crude, Morse said Brent would be at $48 for this quarter (Q3, 2016), between $50 and $52 for the coming quarter (Q4, 2016), and at $65 by the end of 2017.

At $50 a barrel, drilled wells will be completed, and at $60, drilling will pick up, he said.

Morse called the issue of a shale cap a “moving target” tied to the cost of producing oil in the United States – a figure that keeps falling.

The current “cost-deflationary environment” for shale production is new territory for the United States, which makes it difficult to know how a price rebound over the next two years will affect American shale. Cheap deep-water oil production has furthered the downward cost trend as well, Morse commented.

The analyst predicted that shale production would be capped once prices return to normal levels, though the terms of the cap remain unknown.

Domestic drilling saw two months of consecutive, but modest gains that have begun tapering off in intensity due to the lack of barrel price movement.

Major OPEC producers, such as Libya, Nigeria, and Venezuela have seen massive production slides due to rival governments, separatist movements, and massive budgetary failures, respectively.

These slides make it difficult for countries to agree on a cap, since a sudden and dramatic loss in one country could be offset by all-out production in another country with available capacity, such as Saudi Arabia.

Morse said that he believes that OPEC is close to capacity and that Iran and Iraq will not be able to ramp up production much higher than current output.